Pledge more gold for NBFC loans

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A Reserve Bank ‘intervention’ has taken the shine out of the firms extending finance against pledged gold, and made things difficult for people banking on these firms for such loans. Customers will now have to shell out more gold for a loan.

The aim is to rein in the galloping non-banking finance companies (NBFCs) like the Manappuram, the Muthoot etc.

As per an RBI circular issued on Thursday, the loan to the value (LTV) of gold has been capped at 60 per cent when customers were getting up to 85 per cent.

Given Thursday’s gold price of Rs 20,720 a sovereign (eight gm), the loan now available will be around Rs 12,400 when it could have been around Rs 17,600, prior to the circular. For a loan of Rs 1 lakh, the customer will now have to mortgage 64 gm of gold against the 47 gm earlier.

The drop can be dearer since it is jewellery that is mortgaged and the nearly 20 per cent making charges on it remain the same.

The two companies, growing at more than 50 per cent together, have gold loan assets valued at around Rs 35,000 crore. According to George Alexander Muthoot, managing director of the country's largest gold loan company, the firm has gold loan advances of around Rs 24,000 crore while the value of jewellery held was more than Rs 40,000 crore. VP Nandakumar, executive chairman of Manappuram Finance Ltd, said the company has an average LTV of 64.66 per cent and the total gold loan advance was around Rs 11,000 crore.

However, companies were advancing LTV upto 85 per cent based on the customer profile and claim that they did not accept gold more than 100 gm.

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